How Apple’s market value gets to $1 trillion

“For investors seeking a piece of Apple, there’s still significant upside to be had, suggests a new report from RBC Capital Markets out on Monday,” JP Mangalindan writes for Yahoo Finance. “RBC Capital Markets analyst Amit Daryanani writes that the Cupertino, Calif.-based tech giant could see its market cap hit — or even surpass — $1 trillion within the next 12-18 months. Apple currently has a market cap of $802.9 billion.”

“The RBC Capital Markets analyst’s decidedly bullish scenario assumes mid-single-digit revenues growth for Apple, driven largely by the launch of the highly anticipated iPhone 8 this fall,” Mangalindan writes. “Apple’s flagship device, rumored to sport an all-new design and features like a larger screen and wireless charging, is expected to sell at a higher ‘premium’ retail price. He also expects the iPhone 8 to see sales comparable to previous iPhones or modestly higher sales.”

“However, Apple needs to reach several milestones before it can achieve a $1 trillion market cap, Daryanani explains. Those milestones include Apple expanding its gross margins and operating margins by 20-30 basis points and nearly 100 basis points, respectively. That could be achieved, in part, through further growing its share in the smartphone and tablet markets,” Mangalindan writes. “‘In our view, the smartphone space is currently a two-horse race where Apple will be one of the winners in continuing to gain market share,’ he adds.”

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Stock Market 101: Wall Street doesn’t control, decide or “set” the price of a stock. Nor does it “reflect” the state of the economy, let alone the state of any company represented.
For example, the success of Apple (or lack thereof) has no direct effect on the price of Apple’s stock. Rather, when traders are (in general) more interested in selling it than buying it, the price of a stock declines. The opposite is also true.

If you “Play” the stock market (trade) you quickly discover the only way to make money on a rising stock is to be among the first to buy it (when it is still low). And the only way to avoid losing money on a declining stock is to be among the first to sell it (when it is still high). The net result, folks, is traders don’t watch the company behind the stock. They are watching each other. If a few start selling a stock, the rest rush to sell it, too. If they hear some news (or some analyst’s comments) that they think will cause other traders to react, they will try to be among the first to so react. Thus they become a self-fulfilling prophecy.

Investors, on the other hand, are interested in the company. They buy and hold for the long term. For them, it’s a savings account with (hopefully) a better return. But because of this, Investors don’t influence price changes in any way.

Wall Street is not smart, stupid or clueless. People who cry, “They just don’t understand Apple,” don’t understand the market. It’s a mob-mentality, pure & simple. They don’t care about you, me or Apple. They only care about each other and any “skill” they may have is simply the ability to predict what other traders might do before they do it.

In other words, “traders” are like sheep… If a few suddenly start to run, they all run and in the same direction. Only afterward will analysts attempt to figure out why.
What’s the solution for Apple? Minimize their reliance/exposure to traders. So, you begin share buy-backs and bond issues – with an eye toward reducing your risk (from traders) or perhaps one day eliminating it! (Get out of the stock market and go private. All they’d really need is lots of money to fund themselves! Hmmm.)

Firing on ALL product cylinders like say, for example, their professional and most powerful Macs & desktops (currently experiencing sales lows, especially to what they could be) certainly couldn’t hurt.

Oh and upgrading the Apple TV to 4K and selling Apple branded WiFi routers, monitors, etc.. You know, the whole ecosystem widget with an Apple logo on it that makes us feel all warm and snuggily?

It pretty much seems like a pipe dream of Apple reaching $1T in market cap. Apple can sell as many iPhones as ever and that still doesn’t mean Apple’s share price will go up considerably. It’s P/E could compress yet again. Apple stock appears to be locked into a lower P/E than the S&P 500 standard and yet the company is being called overvalued. In other words, Alphabet could beat Apple in market cap by having its P/E stretched further than it is. Even Microsoft has a far better P/E than Apple. Heck, Amazon has a P/E of 182 and there are still claims Amazon is undervalued. It’s hard for me to imagine paying $970 for a single share of stock but Amazon investors do it happily every single day. Amazon makes Apple look like a slacker company and that totally blows my mind.

I don’t think Apple shareholders should concern themselves about Apple’s market cap and they should be more concerned about Apple consistently raising dividends. At least dividends are under Apple’s control and not governed by outside pessimism. No matter how well Apple does, the FANG stocks will continue to outperform Apple in share gains and value. I wonder if Apple can do anything to change that trend. Acquiring some highly profitable company with long-term potential?

Dividends seem to be important for AAPL due to Apple appearing to ‘sit’ on piles of cash that is not ‘working’ for the company. For companies like Amazon investors see a constant push to reinvest and grow itself. Perception and visibility of where the money is being expended I guess makes all the difference to thoughtful investors.